In the banking industry, “float” is a term used for the difference between the ledger balance and the collected balance for a demand deposit bank account. When a deposit is credited to an account, the funds that go with the deposit credit may take time to collect. For example, if the credit is a check, the depositary bank must ultimately present the check (either physically or electronically, directly or through intermediaries) for collection to the drawer's bank. The drawer's bank then transfers the funds to the depositary bank. During the time it takes for presentment and funds transfer, the ledger balance on the account reflects the deposit, but the collected balance, which is the balance of actual funds in the possession of the depositary bank, does not reflect the deposit.
For consumers, legislation and/or regulations require that banks make funds corresponding to deposit credits available on a specific schedule without fee, regardless of whether the funds have been collected. However, banks typically charge business and other non-consumer customers for use of funds corresponding to a deposit credit prior to collection. The fee charged for the use of such funds can also be referred to as “the float” attached to the deposit credit. The term “float” can also refer to the sum of all of these fees being collected at any given time. In fact, most large banks treat “float” for non-consumer customers as a product that is managed and creates revenue just as any other product within the bank.
Float pricing in modern banks must take many factors into account. The type of customer must be considered, as well as any special terms regarding float that might be contained in the agreement between the bank and the customer. As with any other product, the actual cost of providing float to a customer, which may include costs related to collection, volume, and the duration of the float, must also be taken into account. Historically, banks assigned commercial account numbers within specific ranges or with specific formats to customers as a way of at least partially fixing float characteristics for accounts. Today, however, many large banks have been formed from mergers and acquisitions, creating not only accounts with numbers that don't match up to previously used schemes, but in some cases even duplicate account numbers. Accounts can be spread across different demand deposit account (DDA) systems. Also, account characteristics are often changing. For example, the home location or “domicile” of an account might change as a bank gets reorganized, resulting in the need to reevaluate the float pricing for the account. Thus, float pricing can be a labor intensive process for bank management.